Banks Fighting Capital Rules in Denmark Get Slammed by Rohde

By Peter Levring and Christian Wienberg -
Jun 12, 2013

Lars Rohde, the governor of
Denmark’s central bank, lashed out at the nation’s banks for
resisting efforts to tighten capital requirements.

“It’s an obvious misunderstanding that rising funding
costs are an argument against banks holding more capital,”
Rohde said in a statement on the bank’s website today. “The
better capitalized a bank is, the less markets demand in
returns, both on equity and debt. The societal costs of
financial crises are considerable.”

The nation’s six biggest banks face as much as 5 percentage
points in additional capital requirements if lawmakers decide to
follow recommendations in a March proposal by a government
committee. The industry has lobbied against the planned
tightening of standards, arguing the measures will push up
funding costs and make it harder to lend to businesses as the
Danish economy struggles to grow.

“It’s not a law of nature that banks should have a return
on equity of 15 percent or 20 percent, as many banks had before
the crisis,” Rohde said at a press conference. “If banks feel
funding costs are rising as they increase equity, that must be
attributed to market flaws, which are mainly caused by investors
expecting to be bailed out by the government.”

Sifi Capital

Denmark’s systemically important financial institutions
“don’t have problems meeting capital requirements” in the
central bank’s stress tests, Rohde said. “That reflects that
the institutes since 2008 have focused on building their capital
foundations.”

Still, several banks that aren’t systemically important to
the economy need to build capital, the central bank said, citing
the results of its stress test.

“Equity is low for most financial institutions and
writedowns are high,” the bank said.

Denmark’s central bank reduced its growth forecast for this
year and predicts the economy of Scandinavia’s weakest nation
will grow 0.5 percent in 2013. In March, the bank had foreseen
0.8 percent expansion. The economy will expand 1.7 percent in
2014 and 2015, matching prior estimates, the bank said.

The $300 billion economy is struggling to emerge from a
burst property bubble, which triggered a banking crisis and
wiped out more than a dozen lenders since 2008. The government-backed Economic Council has urged the government to add stimulus
to help spur demand. Rohde warned against such policy steps
today.

“The economic situation doesn’t warrant easing of fiscal
policy, even though the normalization of private-sector demand
has been protracted,” Rohde said. “Instead, focus should be on
increasing private and public sector productivity.”